• Chinese trade retaliation overshadows Chairman Powell’s speech on Friday
  • Stocks drop on risk-off in markets over trade
  • The dollar falls- Gold and silver rally
  • Brent gains while WTI falls on the week
  • Weakness in agricultural commodities continue

The story of this week:

 

The Trade War Ramps Up On August 23

 

The market expected some fireworks after Chairman Powell’s speech at the Jackson Hole, Wyoming retreat on Friday. However, it did not expect China to escalate the trade war. The Chinese announced tariffs on $75 billion in US exports to the world’s second-leading economy. After a week of risk-on, risk-off was the flavor of the day on Friday.

While the Fed Chairman gave a dovish overall address in Jackson Hole, it fell far short for the US President who tweeted:

Source: Twitter
The market reacted negatively to the Chinese move and the reaction from the US President.

The DJIA fell by over 600 points with all of the other leading equity indices posting losses. The VIX moved back around the 20 level, and crude oil and other industrial commodities prices moved to the downside. The risk of a global recession because of the trade war is rising dramatically.

Gold and silver prices moved higher on fear and uncertainty. Gold moved over $30 higher from the lows of the session to just under the recent high. The dollar index fell, but that did not help any other commodities prices other than gold and silver. August has been a crazy month in markets with high price variance across all asset classes. After the Chinese made a move early in the day, the next move in the high-stakes chess game over trade is now up to the Trump administration. The President will travel to Europe and the G7 meeting over the weekend. He is not likely to be very popular with his counterparts at the gathering.

It is a time for caution in markets, the trade and currency war has reached a new level. We could see lots of price variance next week, which is the final week of August and the summer season. Fasten your seatbelts for wide price variance across all asset classes. Gold has been shining, and that is likely to continue in the current environment.

Late in the day, President Trump fired back increasing the tariffs on $250 billion of Chinese exports to the US from 25% to 30%. Additionally, he raised the tariff on $300 billion that take effect on September 1 from 10% to 15%. Time will tell how and if China responds.

 

Highlights in commodities: 

  • Gold moves 0.92% higher on the week and closes just below the recent high
  • September silver gains 1.70% since last week and closed at over the $17.40 per ounce level
  • Platinum edges 0.45% higher since last week. October platinum was at a $676.10 per ounce discount to October gold futures, which widened since last week
  • Palladium moved 0.90% higher for the week and settles at above the $1450 per ounce level
  • September copper falls 2.50% on the week to a new low for 2019 and the lowest price since June 2017
  • October iron ore futures move 0.43% higher on the week
  • The BDI moved 3.47% higher since August 16 and rises to the 2118 level
  • Rotterdam coal moves 3.97% lower since last week
  • September lumber falls 1.13% since last week
  • October NYMEX crude oil 1.24% lower since August 16 on concerns over trade
  • October Brent crude oil moved 1.24% higher since the previous report. October Brent was at $59.41 per barrel on Friday as the Brent recovered and outperformed WTI crude oil
  • The premium for Brent over WTI in October closes Friday at the $5.24 level up $1.37 from last week
  • October gasoline moves 0.27% higher while October heating oil futures rise 0.12% over the past week
  • The gasoline crack spread in October was 10.70% higher while the October heating oil crack moved 4.30% to the upside since August 16
  • Natural gas fell 2.18% on September futures closing the week at $2.152 per MMBtu. The EIA reported an injection of 59 bcf into storage on Wednesday for the week ending on August 16
  • October ethanol moves 1.22% higher on the week
  • November soybeans fell 2.64% since last week on trade issues
  • December corn falls 3.41% on the week
  • CBOT December wheat moves 0.26% higher since last week. December KCBT wheat trading at a 73.0 cents discount under December CBOT wheat. The discount remains far from the historical norm
  • October sugar declined by 1.46% since August 16
  • December coffee fell 0.21% lower on the week on weakness in the Brazilian real
  • December cocoa recovered by 1.91% since last week
  • December cotton fell 3.19% since August 16 on trade issues
  • November FCOJ futures moved 2.33% lower, as the price closes under the $1 per pound
  • October live cattle rose 1.38% since last week as the peak season is coming to an end
  • October feeder cattle fall 0.24% higher since August 16
  • October lean hog futures fall 4.35% over the past week to under 60 cents per pound
  • The September dollar index futures contract falls 0.49% on the week as the index drops below the 98 level
  • September Long-Bond futures trading at 165-12 unchanged for the week as market participants seek safe-havens. The long bond traded to a new high at 166-30 on August 15
  • The Dow Jones Industrial Average closes at 25,629 on Friday, August 23, down 257 points from August 16 after a wild week of ups and downs. The S&P 500 falls 1.44% since last week. The VIX gains 1.25 and was trading at around 19.87 on Friday with the recent high at 24.81
  • Bitcoin was trading at $10,422.17 on Friday down $81.25 or 0.77% since August 16
  • Ethereum was trading at $194.59 on Friday, up 3.98% since the last report

 

Price Changes for the week:

DBC closes at $14.81 per share, down two cents per share since August 16  

Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.57 billion and trades an average daily volume of 1,041,878 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. Total average volume rose over the past week in a sign of increasing interest in the commodities asset class even though the price of the ETF edged lower.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.